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What drives labor share change? Evidence from Korean industries

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  • Song, Eunbi

Abstract

Using aggregate- and industry-level data, this study shows the role of factor substitution and technological progress in labor share change in Korea over the past 30 years. Aggregate labor share shows a declining trend while masking the divergence in labor share at the industry level. The industry-level analysis provides evidence that in major capital-intensive industries with high substitutability between capital and labor such as electronics, an increase in the capital-to-labor ratio tends to be associated with a fall in the labor share. Given their rapid growth in value-added, these industries play a key role in the declining aggregate labor share. Service industries such as finance, with rapid labor-augmenting technological progress and low substitutability, have also contributed to the declining aggregate labor share.

Suggested Citation

  • Song, Eunbi, 2021. "What drives labor share change? Evidence from Korean industries," Economic Modelling, Elsevier, vol. 94(C), pages 370-385.
  • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:370-385
    DOI: 10.1016/j.econmod.2020.10.009
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    More about this item

    Keywords

    Factor substitution; Labor-augmenting technological change; Labor share; Korea;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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